The tax ruling was given on November 18, 2020. According to Coca-Cola, the US Tax Court’s ruling raises fundamental questions of tax, administrative, and constitutional law warranting further consideration by a full Tax Court.
The facts of the tax dispute are as follows. Upon examination of the company’s 2007-2009 returns, IRS determined that the company’s methodology did not reflect arm’s length principle because it overcompensated the supply points and undercompensated the company for the use of its intellectual property.
The US tax authority reallocated income between the company and the supply points employing a comparable profits method that used the company’s unrelated bottlers as comparable parties. These adjustments increased the company‘s aggregate taxable income for 2007-2009 by more than USD 9 billion.
In its decision, the Tax Court said that the IRS did not abuse its discretion by reallocating income to the company by employing a comparable profits method that used the supply points as the tested parties and the bottlers as the uncontrolled comparables. The US Tax Court further held that the tax authority did not err by re-computing the company’s losses after the comparable profits method changed the income allocable to the company’s Mexican supply point, a branch of the company.
In a Motion for Reconsideration of findings or opinion filed on June 2, the company said that “the IRS is attempting to impose billions of dollars in additional taxes on Coca-Cola in this case under a different tax calculation method than that on which Coca-Cola justifiably relied and which the IRS audited and approved for over a decade before retroactively requiring Coca-Cola to use a new and different method for tax years long past. The IRS’s attempt is arbitrary, capricious, and unconstitutional.”
The company added that the US Tax Court has the opportunity to correct these fundamental errors now, and with the utmost respect, Coca-Cola asks the Court to reexamine its opinion in this nationally important, precedential tax case.
The US Tax Court enjoys substantial discretion to reconsider findings of fact and conclusions of law under Tax Court Rule 161, the company said.
The author is Alex Hunter, Editor, TP News. He oversees and updates the publication and also regularly writes news stories about transfer pricing and international tax law. Alex is reachable at firstname.lastname@example.org